Federal Tax

Net Operating Losses — Concepts and Computations (Portfolio 539)

  • Bloomberg Tax Portfolio, Net Operating Losses — Concepts and Computations, No. 539, describes and illustrates the tax principles for using a net operating loss sustained by a taxpayer as a net operating loss deduction under §172.

Description

Bloomberg Tax Portfolio, Net Operating Losses — Concepts and Computations, No. 539, describes and illustrates the tax principles for using a net operating loss sustained by a taxpayer as a net operating loss deduction under §172. The net operating loss deduction allows a taxpayer with a loss in one taxable year to carry the loss back or forward to offset taxable income of earlier or later taxable years. By permitting taxpayers to offset profitable years with loss years, the deduction minimizes the disparity that would otherwise result between businesses with stable incomes and businesses with fluctuating incomes due to use of an annual accounting period.

After briefly examining the background and rationale of §172 and providing an overview of the deduction, this Portfolio points out that most taxpayers are eligible to deduct net operating losses and examines the eligibility restrictions. The Portfolio then furnishes a step-by-step explanation of the computations required in applying §172, including: (1) the computation of a net operating loss; (2) the determination of the carryback and carryover periods, including the temporary carryback periods applicable to disaster losses; (3) the computation of the amount of net operating loss carrybacks and carryovers; and (4) the computation of the net operating loss deduction. Procedural aspects of claiming the deduction are also examined. The Portfolio describes the alternative minimum tax net operating loss deduction, which replaces the deduction under §172 for alternative minimum tax purposes.

Table of Contents

I. Introduction
II. Eligible Taxpayers
III. Calculation of Net Operating Loss
IV. Carryback and Carryover Periods
V. Net Operating Loss Carrybacks and Carryovers
VI. Deduction Allowed
VII. Special Rules
VIII. Tax Returns and Compliance
IX. Alternative Minimum Tax Treatment

freitag-carla-2015
Carla Freitag
Tax Management Portfolio Authors
Top